Updated – Originally published Feb 5, 2025
If you’re selling across state lines or growing your online business, a vital question you’ll face is: do you have sales tax nexus? Determining sales tax nexus is essential because it defines where your business is required to collect and remit sales tax. The answer isn’t always straightforward. Different factors like physical locations, third-party employees and volume of sales all play into each state’s unique criteria in different ways.
In this guide, we’ll walk you through exactly what sales tax nexus is. We will cover the different types of nexus that could affect your business and a clear five-step process for identifying where you have obligations. You’ll also learn what triggers nexus, how to handle multiple states, when to register and what happens if you ignore your responsibilities.
Whether you’re just starting to think about sales tax or you’re already feeling the pressure of expanding into new markets, this step-by-step breakdown will give you the clarity you need to figure out your next steps.
How Do You Determine If You Have Sales Tax Nexus?
You determine sales tax nexus by identifying whether your business has a connection to a state through physical presence, economic activity, employees, inventory or affiliates. If you meet a state’s nexus criteria, you are required to collect and remit sales tax in that state.
The challenge is that nexus isn’t a one-size-fits-all concept. Each state sets its own rules for what creates a taxable connection, and those rules can change. Some states focus heavily on physical presence, while others care more about your sales volume. Many look at both. That means a business selling the same products to buyers in California and Texas might have completely different obligations in each state.
Once you understand the types of nexus and what triggers them, you can build a reliable process for tracking your obligations. Let’s start with the basics.
What Is Sales Tax Nexus?
Sales tax nexus is the criteria that determine whether or not your business is responsible for charging and remitting sales tax to its buyers in a particular location. Nexus defines your connection to that jurisdiction. It is your business’s “link” to a state. The criteria might include a physical location, having a store or warehouse, employing people locally or passing an economic threshold in sales.
Managing sales tax nexus is difficult because rules change between states and even within state lines. That’s why it is so critical for businesses to understand where and how they may become responsible for remitting sales tax.
What Triggers Sales Tax Nexus?
People often ask: what triggers sales tax nexus? The answer depends on the type of connection your business has with a state. Here are the most common triggers:
- Employees in another state, including full-time staff, part-time workers or sales representatives.
- Inventory in warehouses or fulfillment centers, even if you don’t own the facility.
- Remote workers who perform services on your behalf from their home state.
- Sales exceeding economic thresholds such as $100,000 in revenue or 200 transactions.
- Affiliate or marketing partners who refer buyers to your business in exchange for commissions.
- Trade shows or temporary presence where you exhibit, sell or take orders.
Any one of these activities could create a sales tax obligation. And in many cases, businesses trigger nexus without realizing it until they receive a notice from a state tax authority.
Types of Nexus and Their Triggers
There are several different types of sales tax nexus, which means your team should be watching for any of the following triggers that could indicate sales tax nexus.
Physical Nexus
What It Is
Physical nexus can be one of the easiest ways to identify sales tax liability. If you open a new location in a new state, you are clearly liable for sales tax in that state. However, the states’ definitions dive a little bit deeper into what is considered physical nexus.
Here are a few examples of how some states define physical nexus:
- “Maintaining, occupying or using permanently or temporarily, directly or indirectly or through a subsidiary, an office, place of distribution, sales or sample room or place, warehouse or storage place or other place of business.” In simple terms, if your business uses any physical space like an office or warehouse in a state, you likely have physical nexus there.
- “Having a representative, agent, salesman, canvasser or solicitor operating in this state under the authority of the retailer or its subsidiary on a temporary or permanent basis.” This means that having people working on the ground in a state creates a physical connection for your business.
Triggers
Physical nexus isn’t just triggered by opening a new brick-and-mortar location. You may also have physical nexus if you have employees or agents working for you in that state. If you carry inventory or use a distribution facility in another state, you are also triggering physical nexus.
Example
Consider a hypothetical example in Alabama where an out-of-state company used unrelated individuals working on commission to measure students for caps and gowns. There was no written agreement between the company and the individuals doing the measurements, but a judge ruled that they were most certainly implied company employees. In addition, the company was liable to pay sales tax because of the significant presence of their profitable goods (the caps and gowns) in the state of Alabama.
Economic Nexus
What It Is
Economic nexus means you have to collect and pay sales tax in a state simply because you sell a lot there, even if you don’t have a physical building or employees in that state. It is based entirely on your sales volume or how many transactions you make.
Economic nexus became a much bigger deal after the 2018 Supreme Court case, South Dakota v. Wayfair, that determined that e-commerce businesses that had no physical presence, but a significant volume of sales, could still be liable to remit sales tax.
Triggers
Different states have different thresholds for what triggers economic nexus. While there are some common numbers to watch for, always check with the state’s tax authorities for exact nexus thresholds. Here are some state examples:
- CO, WA, AZ, NM, MO, FL (and more): $100,000 in sales.
- NV, UT, VA, GA, IL, MN (and more): $100,000 in sales or 200 transactions.
- CT: $100,000 in sales and 200 transactions.
- MS, AL: $250,000 in sales.
- TX, CA: $500,000 in sales.
- NY: $500,000 in sales and 100 transactions.
There may be caveats as to what types of transactions are included in hitting the economic nexus threshold. In Alabama, for example, excluded transactions include sales made through marketplace facilitators (third-party platforms like Amazon or Etsy that process sales for you), wholesale sales and exempt services.
Calculation Period
When assessing your economic nexus, check the state’s guidelines for how to calculate and when your economic nexus officially goes into effect. In Illinois, you hit their economic threshold when you have $100,000 in gross sales over the past 12 months or 200 or more annual transactions. Even registration requirements will differ. In Indiana, your registration obligation starts on the day the threshold is exceeded. In Iowa, the registration requirement begins on the first day of the month, 30 days after the business crosses the threshold of $100,000 in annual gross sales.
Example
If a clothing retailer in Florida meets the economic requirements for nexus in New York (more than $500,000 in sales to New York buyers or 100 or more separate transactions) in a calendar year, it now has the responsibility to register for, collect and remit sales tax for the state of New York.
Affiliate Nexus
What It Is
Affiliate nexus occurs when a business has a relationship with a partner in a state and it triggers sales tax responsibility. This could be a business partner, salesperson, affiliate marketer or distributor. While the business may have no other physical presence in the state, they will still be responsible for remitting sales tax.
Since nexus essentially identifies any links your business has with a state, an affiliate establishes that (even without a physical store or warehouse) someone in that state is conducting business on your behalf.
Triggers
According to the Sales Tax Institute, more than 30 states have affiliate nexus laws, which may include sales thresholds (varying from $0 to thousands of dollars) and definitions for what qualifies as an affiliate.
Example
An out-of-state electronics retailer partners with a local business in Texas to store and distribute their products. The local business handles all the inventory, packaging and shipping for the electronics company. Even though this is a partnership and not a direct-hire, the electronics company has set up operations in Texas that could trigger affiliate nexus.
Click-Through Nexus
What It Is
Click-through nexus and affiliate nexus are very similar. Click-through nexus focuses on the act of generating sales through online links on a website, blog or social media, often referred to as affiliate marketing.
Triggers
Most states have a revenue threshold that must be met for click-through nexus to apply. It can be over the course of a 12-month period or a calendar year.
Example
Let’s say your business sells fitness equipment. As part of your marketing strategy, you partner with fitness bloggers who use affiliate links on their blogs to drive traffic and sales. If sales generated through that link exceed the sales threshold for affiliate nexus (California is $100,000, for example), then your company is required to collect and remit sales tax.
Other Types of Nexus
Your business can trigger nexus in additional ways, such as through affiliate marketing programs, drop shipping, remote employees or third-party contractors. With so many channels open to triggering sales tax nexus, it’s important that your business is vigilant about identifying sales tax liabilities.
Can You Have Sales Tax Nexus in Multiple States?
Yes, and it’s more common than you might think.
If your business sells online, ships products to multiple states or has employees working remotely across the country, you could easily have nexus in five, 10 or even more states at the same time. E-commerce businesses and Software as a Service (SaaS) companies are especially likely to find themselves in this situation because their buyers can be located anywhere.
Here’s what you need to know:
- Each state is evaluated separately. Meeting the threshold in one state has no bearing on another. You need to track your sales, transactions and activities for each state individually.
- Thresholds vary widely. Some states require $100,000 in sales to trigger nexus. Others set the bar at $500,000. A few still use transaction counts as part of their criteria.
- Compliance requirements stack up. If you have nexus in multiple states, you’ll need to register, collect and file returns in each one. That can mean different filing frequencies, different rates and different rules about what’s taxable.
The key is to stay organized. Build a system for tracking your sales by state and review your nexus exposure regularly. If you’re growing quickly, this is one area where a little proactive attention can save you a lot of headaches down the road.
Five Steps to Determine Your Sales Tax Nexus
With the help of reliable sales tax software, you can automate parts of your sales tax compliance. Software is good for repetitive tasks and collecting sales tax. However, there are limitations where your team needs to oversee accuracy, remittance and changing tax laws. The more complex your business is, the more oversight your tax software may require.
We recommend the following steps to assess your nexus states to ensure sales tax compliance:
Step 1: Review Your Business Activities
You should regularly audit how and where you do business. Checking where you store inventory or track new employees is crucial to identifying potential sales tax nexus triggers. Ask yourself:
- Do we have any employees, contractors or sales reps working in other states?
- Are we storing inventory anywhere outside our home state?
- Have we attended trade shows or conducted temporary business activities in other states?
Document everything. Even activities that seem minor can create nexus in certain states.
Step 2: Analyze Sales by State
As sales increase, pay closer attention to sales tax thresholds and triggers in high-volume states. Pull reports that show your revenue and transaction counts broken down by state. Look for:
- States where you’re approaching common thresholds ($100,000 or 200 transactions).
- States where you’ve already exceeded thresholds without realizing it.
- Trends that suggest you’ll cross a threshold in the coming months.
Sales trend forecasting can help you identify specific states where you may need to register for a sales tax license before you’re caught off guard.
Step 3: Check Economic Nexus Thresholds
Because sales tax rules vary so much, always consult the tax authority for the state where you might trigger nexus. Those resources are often changing and should be reviewed regularly. Key questions to answer:
- What is the sales threshold for this state?
- Does the state also use a transaction count threshold?
- What is the measurement period (calendar year, rolling 12 months, etc.)?
- When does the registration requirement kick in after crossing the threshold?
Step 4: Review Physical Presence (Employees, Inventory)
Physical nexus can sneak up on you. A single remote employee or a third-party warehouse can create obligations you weren’t expecting. Review:
- Where your employees and contractors are physically located.
- Where your inventory is stored, including Fulfillment by Amazon (FBA) warehouses and other fulfillment centers.
- Any property, equipment or assets you own or lease in other states.
Step 5: Use Tools or Consult Experts
If sales tax is just getting on your radar, check out our free nexus calculator to help you identify regions where you may be nearing or have already triggered sales tax nexus. For more complex situations, talking to a sales tax professional can save you time and help you avoid costly mistakes.
When Do You Need to Register for Sales Tax?
Once you’ve determined that you have nexus in a state, the next question is: when do you actually need to register?
The short answer is that you should register as soon as you cross the threshold. But the specifics vary by state:
- Some states require same-day registration. In Indiana, for example, your registration obligation begins on the day you exceed the economic nexus threshold.
- Others give you a short grace period. In Iowa, the registration requirement begins on the first day of the month, 30 days after your business crosses the threshold.
- A few states have unique rules. Always check the specific state’s guidelines to understand exactly when your obligation begins.
The important thing is not to wait. Delaying registration doesn’t pause your liability. If you’re required to collect sales tax and you don’t, you could be on the hook for the uncollected amount, plus penalties and interest.
When you’ve identified states where you have already or are going to soon meet the nexus requirements, you have to register with the state for a sales tax permit. This means you have the legal right to charge, collect and remit sales tax in that state. The registration process is generally straightforward and will request information such as your business name, type, location and ownership information.
Once you have your sales tax permit, you’ll need to set up internal procedures for collecting and remitting sales tax.
This might look like updating software, websites and point-of-sale systems (the hardware and software you use to ring up purchases in person) to include sales tax as part of the full purchase price of the items.
You may also want to review if any of your products qualify as exempt sales in the states that don’t require sales tax.
Finally, routine monitoring and internal audits can ensure you stay compliant with the latest legislation and sales tax laws.
What Happens If You Ignore Sales Tax Nexus?
For leaders of high-growth or expanding companies, sales tax compliance often falls to the bottom of the to-do list repeatedly. It can be an intimidating task since you have to learn complex tax rules and carefully check the requirements for every location. Unfortunately, government entities don’t see it that way, so your business could face serious consequences for unremitted sales tax.
Financial penalties add up quickly. If you’re audited, unpaid sales tax can cost you additional penalties and fees, including interest on the unpaid balance. If you are looking at years of unpaid sales tax, the total cost could drain your cash reserves and threaten your daily operations. Shortages of cash could damage vendor relationships or hurt your reputation with buyers.
Your business activities can trigger an audit. The way you conduct business may also be the trigger for an auditor to take a closer look. If they notice a high volume of sales from an out-of-state retailer or even a significant number of independent contractors (1099 workers) for a business not in their state, it may be enough to launch an investigation.
The state is watching. Although sales tax may not be on your radar, the state is definitely watching. Make sure you are tracking nexus thresholds and registering for sales tax in the states where your business has met the nexus requirements.
What about sales before nexus is triggered? While you aren’t responsible for sales tax on the purchases made up to the point of nexus being established, some states have statutes of limitations that can lead to back taxes, penalties and interest if your business fails to comply after triggering nexus. You can avoid this by planning early, particularly if you are experiencing growth, and consulting with sales tax professionals for guidance.
Your Next Step: From Understanding to Action
Building a successful business means staying ahead of your tax obligations before they become expensive problems. Knowing what nexus is and actually managing it are two different challenges.
The businesses that handle sales tax well aren’t the ones who memorize every state’s threshold. They’re the ones who build a reliable process for tracking their exposure and take action before problems show up. That means:
- Running regular nexus reviews as your business grows and enters new markets.
- Monitoring your sales data by state so you’re never caught off guard by a threshold you didn’t see coming.
- Staying current on state-specific rules because what was true last year might not apply today.
- Registering promptly when you cross a threshold, not six months later when an auditor comes knocking.
If you’re feeling uncertain about where you stand, you’re not alone. Sales tax nexus is genuinely complex, and the rules really do change from state to state. We offer a free “What’s Next” consultation call with a real sales tax expert to help you navigate these changes. No fees. No pressure. Just a straightforward conversation about your situation and what your options are.
Whether you need help identifying your nexus footprint, understanding your registration requirements or simply want a second opinion on your current approach, we’re here to help you figure out your next steps.Curious what your next best step is? Schedule a free What’s Next call and talk to someone who can give you real answers in real time.
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